Correlation Between Vanguard Financials and Financial Select
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and Financial Select at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard Financials and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and Financial Select Sector, you can compare the effects of market volatilities on Vanguard Financials and Financial Select and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard Financials with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Financial Select.
Diversification Opportunities for Vanguard Financials and Financial Select
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Financial is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and Vanguard Financials is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard Financials Index are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Financial Select go up and down completely randomly.
Pair Corralation between Vanguard Financials and Financial Select
Considering the 90-day investment horizon Vanguard Financials Index is expected to under-perform the Financial Select. In addition to that, Vanguard Financials is 1.14 times more volatile than Financial Select Sector. It trades about -0.28 of its total potential returns per unit of risk. Financial Select Sector is currently generating about -0.25 per unit of volatility. If you would invest 4,156 in Financial Select Sector on January 20, 2024 and sell it today you would lose (173.00) from holding Financial Select Sector or give up 4.16% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Vanguard Financials Index vs. Financial Select Sector
Performance |
| Timeline |
| Vanguard Financials Index |
| Financial Select Sector |
Vanguard Financials and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and Financial Select
The main advantage of trading using opposite Vanguard Financials and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials position performs unexpectedly, Financial Select can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Financial Select will offset losses from the drop in Financial Select's long position.| Vanguard Financials vs. Energy Select Sector | Vanguard Financials vs. Technology Select Sector | Vanguard Financials vs. Health Care Select | Vanguard Financials vs. Industrial Select Sector |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments |